Although energy transformation is imperative, the world is still inseparable from oil, and global oil demand will continue to grow slightly in the next two decades.
On October 31, OPEC released the “World Oil Outlook 2022” report, predicting that oil demand will be close to its peak in the next ten years, and will continue to grow slowly and enter a relatively long period of stability. OPEC’s forecast for peak crude oil demand has been raised. By about 2040, global crude oil demand will reach a peak of about 110 million barrels per day, higher than last year’s forecast of 108.1 million barrels per day.
Although OPEC raised its global oil demand forecast, international oil prices were still under pressure to fall on October 31 amid concerns about the economic outlook. The price of light crude oil futures for December delivery on the New York Mercantile Exchange fell 1.56% to close at US$86.53 per barrel; the price of London Brent crude oil futures for December delivery fell by 0.98% to close at US$94.83 per barrel. However, international oil prices rebounded again on November 1.
Joe Perry, a senior analyst at Gain Capital Group, told a reporter from the 21st Century Business Herald that Brent and WTI managed funds have recently increased their bullish bets on oil prices, with the short-long ratio falling to 20.6% from 22.6% the previous week. Refiners’ interest in crude oil purchases remains strong, and coupled with OPEC+ production cuts and the impending European embargo on Russian oil, the market expects supply tightness may intensify. Oil prices are likely to remain highly volatile in the short term as the market is likely to continue to swing between downward pressure on demand and tight supply.
OPEC raises oil demand forecast
Compared with last year, OPEC has generally raised its forecasts this year.
Specifically, OPEC predicts that world oil demand will reach 103 million barrels per day in 2023, an increase of 2.7 million barrels per day from 2022 and an increase of 1.4 million barrels per day from last year’s forecast. OPEC also raised its oil demand forecast in 2025 from 103.6 million barrels per day to 105.5 million barrels per day, and demand will increase by 13% to 109.5 million barrels per day in 2035. In the longer term, OPEC raised its oil demand forecast for 2040 and 2045 from 108.1 million barrels per day and 108.2 million barrels per day to 109.8 million barrels per day respectively.
There is a divergence in oil demand between developed and developing countries. OPEC said falling oil demand from richer OECD countries would be offset by a surge in demand in the rest of the world, with non-OECD demand rising by 23.6 million barrels per day by 2045, compared with OECD demand. Demand will decrease by 10.7 million barrels per day.
Although oil demand in developed countries will decline in the future, the huge energy needs of developing countries will provide support. OPEC believes that most of the global population growth is in developing countries, which will increase the demand for oil in these countries. In the coming years, as populations grow and economies prosper in developing countries, demand for oil will increase, higher than previously expected.
On the supply side, OPEC believes that its share of global crude oil supply will expand over the next 20 years as competitors reduce production. Total output of crude oil and other liquids from OPEC’s 13 members will climb to 38.3 million barrels per day by 2035, up from 31.6 million barrels per day last year. Ten years later, this number will continue to rise to 42.4 million barrels per day. OECD crude supply will remain essentially unchanged until 2045.
Regarding the current downturn in global oil and gas investment, OPEC believes that the world needs more investment in new oil production. By 2045, the global crude oil industry will require a total investment of US$12.1 trillion, which is 3,000 US dollars more than expected last year. billion to meet demand and address energy security concerns.
On the same day that OPEC released its annual oil outlook report, U.S. President Biden also warned on October 31 that in the context of the global energy crisis, energy companies have an obligation to increase production. If they do not do so, he will call on Congress to consider providing Energy companies impose windfall profits taxes and enact other restrictions.
Are the forecasts too optimistic?
Compared with the International Energy Agency (IEA), OPEC’s forecast of demand prospects is obviously relatively optimistic.
On October 27, the IEA released the “World Energy Outlook” report, predicting that global oil demand will reach a peak of 103 million barrels per day in the next five years or so, and then decline “very slowly” until 2050. In addition, global natural gas consumption will grow at a rate of less than 5% from 2021 to 2030, and then will basically stagnate by 2050.
According to the IEA, the scale of investment in clean energy will be much larger in the future. Based on the policies currently introduced by various countries, global annual investment in clean energy is expected to exceed US$2 trillion in 2030, an increase of more than 50% compared with the current level. But if global net-zero emissions are to be achieved by 2050, global clean energy investment needs to grow to more than $4 trillion per year by 2030.
Regarding energy transition, although OPEC also acknowledges that the share of renewable energy in global energy supply will increase significantly, OPEC also emphasizes that fossil fuels such as crude oil, coal and natural gas will continue to dominate the global energy structure in the next few decades. By 2045, these fossil fuels will account for about 70% of global energy, down from the current level of 80%, with coal use declining significantly and crude oil and natural gas supply shares remaining essentially unchanged.
In contrast, the IEA predicts that the status of fossil energy will decline faster. In 2050, the proportion of fossil fuels in the global energy structure will decrease.The GDP ratio is likely to fall from the current 80% to a level slightly above 60%, and annual global carbon dioxide emissions will fall from 37 billion tons per year to 32 billion tons.
Why do OPEC and IEA differ in their forecasts? A senior crude oil analyst at a large futures company told a reporter from the 21st Century Business Herald that OPEC represents the interests of oil-producing countries, while the IEA represents the interests of consumer countries. It is not surprising that there are differences in the forecasts of the two. Europe and other places are accelerating energy transformation and hope to get rid of it as soon as possible. Relying on fossil fuels, the IEA expects oil demand to peak earlier, while OPEC believes that energy transformation cannot be too radical. On the other hand, there is no particularly big difference between the forecasts of OPEC and IEA.
In any case, as global climate change issues become increasingly prominent, it is inevitable that oil demand will be suppressed. The 27th Conference of the Parties (COP27) to the United Nations Framework Convention on Climate Change will be held in Sharm el-Sheikh, Egypt, from November 7 to 18. The imminent climate issue has once again become the global focus.
On October 26, a climate report released by the United Nations showed that the current climate commitments of various countries are far from enough to avoid catastrophic global warming. The world will heat up by about 2.5 degrees Celsius by the end of this century. It is simply impossible to achieve the goals of the Paris Agreement and reverse the carbon dioxide emissions. Emissions trends are urgent.
Han Bin, deputy director of the Employer Affairs Department of the China Enterprise Confederation and former executive secretary-general of the United Nations Global Compact China Network, told the 21st Century Business Herald reporter that climate warming has become a major environmental and development challenge facing mankind in the 21st century. In order to cope with the global climate The ecological crisis caused by changes, green and low-carbon development characterized by low energy consumption, low pollution, low emissions and high efficiency, high efficiency and high benefits have become the consensus of mankind to break through resource and environmental constraints and achieve sustainable development.
At the upcoming United Nations climate conference this month, governments are likely to pledge to speed up their transition away from fossil fuels. In addition, the popularity of electric vehicles will also suppress oil demand. On October 27, negotiators from the European Commission, the European Parliament and EU member states unanimously agreed to ban the production of new fuel vehicles from 2035. Automakers must Achieve net zero emissions by the year.
Regarding energy transformation, OPEC emphasizes that we cannot abandon food because of choking and need to develop various energy sources in a balanced manner. OPEC Secretary-General Haitham al-Ghais said: “It is important that we understand the pros and cons that each energy source brings, and we want to find answers to questions related to energy affordability, energy security and the need to reduce emissions. We must make the most of it. Well all options, all solutions and all technologies.”
Regarding future energy risks, OPEC reminded that oil investment has been “unnecessarily demonized” and that “chronic underinvestment” in oil supply may exacerbate the global energy security crisis.